Abstract
Several factors have made the quarter ending September 2015 the worst quarter since 2011 for equity markets. These include concerns about economic slowdowns in China and elsewhere around the globe, a severe decrease in commodity prices that’s pulling the currencies of many emerging and frontier markets to record lows against the U.S. dollar, and worries about valuations considered high by historical standards. As exchange-traded funds (ETFs) have grown in popularity and several of them have become optionable, they have positioned themselves as another fast and cost-efficient way of controlling portfolio risk in markets that are not only trending down, but also frequently shaken by large price swings across most asset classes.
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Generally speaking, equity options, whether single stocks or ETFs, trade in units of 100 shares, referred to as an “option contract.” This means each contract represents the right to buy or sell 100 shares of the security it represents.
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Yahoo Finance.
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Readers are urged to visit the Chicago Board Options Exchange website for more details.
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Not all ETF options are American-style. For example, the iShares S&P 500 Index Fund (IVV) option is a European-style option.
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There are a few exceptions, such as S&P 100TM Index Options (OEX).
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Note that most brokerage firms automatically exercise short options that are at least <Footnote ID=”Fn6”><Para ID=”Par33”>Note that most brokerage firms automatically exercise short options that are at least $0.1 in the money at expiration.</Para></Footnote>.1 in the money at expiration.
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Covered calls are also known as “buy-write strategies.”
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A combination of a call and a put with different strike prices constitutes a strangle position.
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For more information on the topic of interest-rate sensitivity, refer to Chap. 4. See also the seminal article written by Burton G. Malkiel, “Expectations, Bond Prices, and Term Structure of Interest Rates,” Quarterly Journal of Economics, 76 (May 1962), pp. 197–218.
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Meziani, A.S. (2016). Investment Strategies Using Options on ETFs. In: Exchange-Traded Funds. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-39095-0_15
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DOI: https://doi.org/10.1057/978-1-137-39095-0_15
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Publisher Name: Palgrave Macmillan, London
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Online ISBN: 978-1-137-39095-0
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